The Gravity of Institutions
AbstractDo good institutions foster trade? Many trade agreements, and notably those of the European Union, introduce institutional provisions in addition to strictly free-trade measures. In this article, we are interested in the influence of democracy and the fight against corruption on trade. We use a gravity model inspired and adapted from Anderson and van Wincoop (2003) but estimated with a Poisson Pseudo-Maximum Likelihood (PPML) method, which circumvents the heteroskedasticity bias encountered with the usual Ordinary Least Square (OLS) estimators. We analyze the effects of institutional similarities on bilateral trade, before regressing the country fixed-effects to test for the consequences of democracy and the fight against corruption on trade for all countries. Our results show that democratic countries are generally more open, but that two democratic nations do not necessarily trade more between each other. The reverse is true for corruption.
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Bibliographic InfoArticle provided by CEPII research center in its journal Economie Internationale.
Volume (Year): (2008)
Issue (Month): 113 ()
International trade; gravity models; governance; democracy; corruption;
Other versions of this item:
- F15 - International Economics - - Trade - - - Economic Integration
- F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
- P33 - Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
- P37 - Economic Systems - - Socialist Institutions and Their Transitions - - - Legal
- P48 - Economic Systems - - Other Economic Systems - - - Political Economy; Legal Institutions; Property Rights; Natural Resources; Energy; Environment; Regional Studies
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- Daumal, Marie, 2008. "Federalism, separatism and international trade," European Journal of Political Economy, Elsevier, vol. 24(3), pages 675-687, September.
- Muhammad, Kabeer & Yücer, Aycil, 2010. "Trade effects of Regional Trade Agreements : trade creation and trade diversion within the Western Hemisphere," Economics Papers from University Paris Dauphine 123456789/10626, Paris Dauphine University.
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